After Brexit, London holds out hope for Indian buyers in UK’s realty market

The immediate impact is going to be a decline in housing sales in the UK, and lack of movement in real estate prices due to a weakening pound.Sobia Khan&Kailash Babar | ET Bureau | June 27, 2016, 07:36 IST

BENGALURU|MUMBAI: London property market, facing headwinds over the past one year, is expected to slow down further after Britain decided to exit the European Union, property experts have warned.

The immediate impact is going to be a decline in housing sales in the UK, and lack of movement in real estate prices due to a weakening pound as buyers are likely to put off their decision to invest in an uncertain market.

Indian builders such as the Lodha Group and Indiabulls Real Estate, which bought multi-milliondollar properties in London, may also face the heat of referendum with the market slowing down further in the short term. However, a weak currency and sluggish property prices may work to their advantage as a mature property market is expected to attract investors.

“In the near-term, the prospects for the UK housing market look uncertain as people would like to adopt a wait-and-watch strategy after the Brexit. However, the London market is very resilient and will bounce back quickly,” said a senior official from one of the companies mentioned above.

Mumbai-headquartered Lodha Group, one of India’s biggest developers, has bet heavily on London’s property market. In 2014, it clinched two property deals in London — seven-storey Macdonald House in central London for Rs 3,000 crore and a building spread over 1.15 acre on Carey Street, close to London School of Economics, for Rs 1,000 crore.

Another Indian builder, Indiabulls Real Estate, has paid £155 million (Rs 1,550 crore) for a commercial property in London's Mayfair, an upmarket London area, and home to the significantly wealthy. It is currently building a luxury project that comprises 50,000 sq ft of residential and 50,000 sq ft of commercial elements, which are said to be largely sold out.

“London & New York are the most resilient and deep real estate markets in the world as was demonstrated during the 2008 global credit crisis. The sharp correction in the pound and the need of the UK government to attract foreign investment will ensure that the London real estate market will remain attractive, and over the next six months, get stronger,” said Vishal Damani, joint MD, Indiabulls Real Estate. An email sent to Lodha Group did not elicit any response till press time.

Over the years, London had in monstrated that it’s a very mature real estate market that has weathered economic turbulences such as the 2008 crisis, since it attracts investments from across the globe — Europe, Asia and the US — and is a very good hedge besides being a reasonable Internal Rate of Return (IRR) investment.

“The vote to leave the EU increases near term risks facing the UK economy. An interest rate cut by the Bank of England is a strong possibility, as is more quantitative easing. For both residential and commercial property, there will be short-term market volatility. Potentially, and in selective instances, pricing could come under pressure,” said Shishir Baijal, chairman and managing director, Knight Frank (India).

Currently, the Goods and Services Tax (GST) is levied at 12 per cent on payments made for under-construction property or ready-to-move-in flats where completion certificate has not been issued at the time of sale.